People who are looking for a new house tend to focus on the list price, but that’s only one factor to consider. To figure out if you can afford a particular home, you’ll have to look at the total cost of ownership. Property taxes are an important part of the equation that you should research before you start looking at houses.
How Property Taxes Are Assessed and Paid
Property tax rates, or mill rates, are set at a local level, and they can vary significantly from place to place. Rates can change over time in response to broader economic trends and the community’s evolving needs. Property tax bills are calculated by multiplying a house’s value by the mill rate.
Homeowners often pay several thousand dollars per year in property taxes. For those with a mortgage, a portion of their property tax bill is added to their monthly loan payment and put into an escrow account.
Why You Should Learn About Taxes Before You Start House-Hunting
If you only consider a home’s list price, you might think you can afford it. When you take property taxes into consideration, however, you might realize that it would be too much of a stretch and that you wouldn’t have enough room left in your monthly budget to cover other expenses. You might be disappointed to realize that you can’t afford your dream home, but you’ll be able to avoid getting in over your head financially.
Learning about property tax rates in different communities can help you target your home search and focus on houses that you’ll be able to afford. You might rule out a city or town that would be too expensive and find a house with most or all of the features you want in a nearby suburb with lower property taxes.
Looking into tax rates before you begin house-hunting can help your real estate agent help you. If you know that certain areas would be too expensive, you and your agent will be able to focus on places where the total cost of ownership will fit your budget. That can save both you and your agent valuable time.
If you buy a house and then fix it up or build an addition, that can increase its value and cause your property tax bills to rise. If the house is in an area with high tax rates, investing in home improvements might make it harder for you to afford to live there. Considering property taxes before you start looking at houses can help you avoid that type of scenario.
